07/18/2013

Know What You Know

“I am wiser than
this man, for neither of us appears to know anything great and good; but he
fancies he knows something, although he knows nothing.”
—Plato

Photo: MarkyBon/Flickr/Creative Commons License

The difference between what you know and what you think you
know could mean the difference between a comfy retirement or punching the clock
instead. Four studies published together in a June 2013 paper in the Journal of Marketing Research have found
that consumers’ subjective knowledge of an investment will outweigh an
objective assessment of their understanding.

Craig Fox

The studies, by UCLA
Anderson’s Craig Fox, Ho-Su Wu Term Chair in Management, and Associate
Professor of Marketing Sanjay Sood, with Liat Hadar, assistant professor of marketing
at the Interdisciplinary Center Herzliya, looked at participants’ investment
decisions in relation to subjective and objective knowledge.

Sanjay Sood

The studies showed
consumers will make safe, but not necessarily the best, investment decisions
when they feel they lack sufficient knowledge even if they, in fact, know
plenty. On the other hand, participants acted boldly if they felt confident
about their knowledge—even if they actually knew relatively little.

Based upon their
research, Fox, Sanjay and Hadar recommend financial education must include
relevant information and support for higher levels of subjective knowledge for
that learning to be effective.